News: CJ Exclusives

Taxpayer Bill of Rights constitutional amendment filed in N.C. Senate

S.B. 717 would cap state spending and require that tax increases go before a vote of the people

The N.C. Senate, in session Monday, March 1. (CJ photo by Maya Reagan)
The N.C. Senate, in session Monday, March 1. (CJ photo by Maya Reagan)

A bill filed in the North Carolina Senate on the traditional April 15 tax deadline day would make tax and spending limits a part of the North Carolina Constitution, if voters approve it in 2022.

Sens. Bill Rabon, R-Brunswick; Paul Newton, R-Cabarrus; and Warren Daniel, R-Burke, are sponsors of Senate Bill 717, Taxpayer Bill of Rights.  The measure is a constitutional amendment. According to the sponsors, it is needed to ensure long-term fiscal health for the state, regardless of which party is in charge.

As of Monday afternoon, there are 19 co-sponsors, all Republicans.

“Companies are not coming here for a day, week, month, or a year, they are making fifty-year bets on our state,” said Sen. Paul Newton (R- Carbarrus), in this week’s John Locke Foundation’s Shaftesbury Society panel discussion.  “…The more structural, or sticky if you will, we can make these tax changes the more confidence these job creators will have in choosing our state over other states.”

The challenge in getting it through the General Assembly lies in that it is a constitutional amendment. In both the Senate and House, the measure requires a three-fifths vote of the chamber’s entire membership to win approval. That higher standard means Republicans will need some bipartisan support to place the measure on the ballot for voters.

The Taxpayer Bill of Rights limits state spending growth not to exceed the combined rate of inflation plus population growth.  S.B. 717 also requires annual deposits in a state savings fund.  The amendment would put into the constitution that excess revenue be returned to the taxpayers. Any tax increase would have to go before the people for a statewide vote.

Since taking over the legislative majority in 2011, Republicans have pushed an agenda of cutting taxes and building up a rainy-day fund, also called a savings reserve.  Every budget passed since 2011 has been at or under the growth of inflation plus population. This strategy was part of their campaign in the 2010 election cycle, when they wrested control from Democrats who’d held at least one chamber of the legislature for more than a century.  In the decade before, Democrat leaders raised sales taxes for everyone and income taxes on businesses. When economic times got tough, the fiscal steps the state has taken to survive were even tougher.

“If you take a look at how the state has weathered this year compared to the economic crisis under Governors Easley and Perdue, it proves that the current fiscal strategy works,” said Joe Coletti, John Locke Foundation senior fellow in fiscal studies. “Under Easley and Perdue, Democrats raised taxes, cut state employees, and Easley even tried to cut contributions to the state employee pension fund, until the Supreme Court said it was unconstitutional.”

Fast forward to today. The state’s tax rate is at 5.25% for individuals and 2.5% for businesses. Republicans propose further cuts, including a boost to the standard deduction. That’s down from a tiered tax system topping out at a 7.75% individual tax rate as recently as 2013.  The now $1.2 billion rainy-day fund has helped recovery from Hurricane Matthew and Hurricane Florence and will likely be used during the economic recovery from 2020.  Gov. Roy Cooper and Democrats have opposed further tax cuts and endorsed tapping the rainy-day fund for a variety of expenditures including teacher raises.

“The reason to put it in the Constitution is to take away an avenue to raise spending and raise taxes in irresponsible ways,” said Coletti.  “A Taxpayers Bill of Rights amendment institutionalizes the good fiscal practices from the past decade, saving money now so nobody has to take extreme measures in difficult times, raising taxes or cutting services and state employee.”

North Carolina is not alone in turning to a constitutional amendment as an insurance policy against runaway tax-and-spend policy. In Colorado, a Taxpayers Bill of Rights was added to the state constitution in 2000.  Since then, the state’s spending has been relatively slower than similar states. Colorado has even strengthened the Taxpayer Bill of Rights to make large fees subject to voter approval.

“There is perhaps no other reform that would do more to make North Carolina an even better place to live and work,” wrote Grover Norquist, president of Americans for Tax Reform, in a letter to lawmakers on Monday afternoon. “At the same time that North Carolina lawmakers have returned billions of dollars to their constituents through pro-growth tax reform, they have also wisely kept spending in check. Enactment of SB 717 will ensure this responsible budgeting of the past decade will become the norm for decades to come, to the benefit of all North Carolina taxpayers.”

The effort may sit well with N.C. voters as well.  In March, the John Locke Foundation polled a Taxpayer Bill of Rights provision among likely voters and found 58% support for it.  Only 17% opposed the idea, while 24% either had no opinion or were unsure.

Poll Question: “Would you support or oppose an amendment to the North Carolina state constitution that would limit the growth of state spending to inflation plus population growth, require yearly deposits in a Savings Reserve or Unfunded Liability Reserve, return excess revenue to taxpayers, and submit tax increases to a vote of the people?

  • 58.4% Support 
  • 17.1% Oppose
  • 10.1% Neither
  • 14.4% Unsure 

This was a poll of 600 likely voters with a margin of error of +/- 4.0%.

So why the Taxpayer Bill of Rights now? Limiting the growth of government over the last decade has contributed to economic growth and and set North Carolina on a path of long term economic health. Supporters of the measure say that restraint is worth enshrining in our state constitution to protect from future fiscal recklessness.

Now, budget experts see red flags in Governor Roy Cooper newly released budget priorities.  For example, Cooper’s Medicaid expansion plan would add at least 623,000 people to the Medicaid entitlement program.

“There are a few items in Governor Cooper’s budget that could really blow up state spending in the next two to four years,” said Coletti. “In his budget, Cooper claimed Medicaid expansion was free because he would use $1.2 billion in extra federal money a year over the next two years. The state would have to find that money in year three and subsequent years.”

Cooper also included in his budget a $4.7 billion bond and other borrowing that does not require voter approval, raising concern among some Republicans about future debt for state taxpayers as they recover from pandemic shutdowns and school closures.

“That is a lot of money that would be due from taxpayers in a few years, and we can’t afford that,” said Coletti. “It’s either going to require raising taxes or cutting expenses, and either way North Carolinians lose.”

Paul Newton (R-Cabarrus) Senate Finance Chairman, “companies are not coming here for a week, six months or a year. They are making fifty-year bets on our state,” said Sen. Paul Newton (R- Carbarrus) in this week’s John Locke Foundation panel discussion. “The more structural, or sticky, we can make these tax changes the confidence these job creators will have in choosing our state over other states.”